OFAC Issues License Delaying PdVSA 2020 8.5% Bond-Related Authorizations

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced that it has issued General License (“GL”) 5D (Authorizing Certain Transactions Related to the Petróleos de Venezuela, S.A. 2020 8.5 Percent Bond on or After October 20, 2020), which continues to delay U.S. persons’ ability to enforce bondholder rights to the CITGO shares serving as collateral for the Petróleos de Venezuela, S.A. (PdVSA) 2020 8.5% bond until on or after October 20, 2020. Additionally, OFAC modified frequently asked question (FAQ) 595 to address the scope of GL 5D.

On May 21, 2018, President Donald Trump issued Executive Order (E.O.) 13835 which, among other things, prohibits U.S. persons from engaging in transactions related to the sale, transfer, assignment or pledging as collateral by the Venezuelan government of any equity interest in an entity owned 50% or more by the Venezuelan government. Thereafter, on July 19, 2018, OFAC issued GL 5, which removed E.O. 13835 as an obstacle to holders of the PdVSA 2020 8.5% bond from gaining access to their collateral.

Starting in January 2019, however, Trump continued expanding the sanctions targeting PdVSA (see Trump and Trade Update of January 19, 2019). Eventually on October 29, 2019, GL 5 was replaced and superseded by GL 5A (and eventually 5B and 5C), which delayed the effective date of the GL 5’s authorizations relating until July 22, 2020 (see Trump and Trade Update of April 13, 2020). The most recent version, GL 5D again delays the effective date of the GL 5’s authorizations to October 20, 2020.

Between October 24, 2019 and October 20, 2020, U.S. persons are prohibited from engaging in any transactions related to the sale or transfer of CITGO shares in connection with the PdVSA 2020 8.5%, unless specifically authorized by OFAC. In the modified FAQ 595, OFAC notes a favorable licensing policy toward those seeking to apply for a specific license in an effort to reach an agreement on proposals to “restructure or refinance payments due to the holders of the PdVSA 2020 8.5 percent bond.”